Comparing product fee vs fee-free mortgages

VinZ_2

Hi,

I was wondering if someone could help me work out which of the following 5 year fixed repayment mortgage deals is cheaper.

Deal 1 (with fee):
Initial rate: 2.74%
Product Fee: £999
Minimum monthly repayments (for a 20 year term): £541.67

Deal 2 (without fee):
Initial rate: 2.94%
Product Fee: £0
Minimum monthly repayments (for a 20 year term): £551.59

According to the calculator at: moneysavingexpert.com/mortgages/compare-mortgage-rates the cost over the 5 year term is:

Deal 1: (541.67 * 12 months * 5 years) + £999 product fee = £33,499
Deal 2: (551.59 * 12 months * 5 years) + £0 product fee = £33,095

So deal 2 is £404 cheaper over the term. However, we should also note that Deal 1 ends up with less to pay at the end of the 5 year term; Deal 1 ends up with £79,876 remaining and Deal 2 ends up with £80,209 to pay (£333 less).

Therefore, going with Deal 2 would save 404 - 333 = £71 (providing you pay off the £333 at the end of the term so you don't accumulate any more interest on it).

Does this calculation look correct? The reason I doubt it is because the two mortgage deals are offered by the same company and I was expecting the one with the upfront fee to be cheaper.

I also tried taking another approach and assumed payments of £600 a month for both. At this rate the interest paid on Deal 1 is £12,129 and for deal 2 it's £13,085. That's a difference of £995. However, as there was a product fee of £999 for Deal 1, you'd actually lose out by £4.